An expanded VA loan program could bring more homes within reach of veterans and service members who are seeking properties that aren’t exactly move-in ready.
VA already offers guarantees on certain loans for “alteration and repair,” both of properties being bought with VA loans and of those being refinanced. But that initial program, which took up about a half a page in the department’s Lenders Handbook and offered few specifics, was replaced in April with an expansive how-to guide, walking lenders through the repair-loan process.
Some details from the new publication:
- Purchase loans and regular (or cash-out) refinancing loans are eligible to include repair-based loans. The Interest Rate Reduction Refinance Loan isn’t mentioned.
- Repairs and alterations “must be those ordinarily found on similar properties of comparable value in the community.”
- Borrowers will be required to bring some cash to the closing table if the total of the sales price, repairs, contingency reserve, inspection and permit amounts is greater than the appraised value (or Notice of Value). The beneficiary must cover that difference out of pocket; if the NOV is greater, the entire amount can be financed (and the funding fee, if it can be added to the total without exceeding the NOV).
- The aforementioned contingency reserve, which is used to cover cost overruns, is not required by VA and is left to the lender’s discretion.
- Lenders can charge a construction fee of up to 2 percent.
- After the repairs, the lender must contact VA and secure a final repair inspection, which will confirm compliance with minimum property requirements.
Learn more about VA-backed loans of all stripes in our VA Loan Center.
Kevin Lilley is the features editor of Military Times.